Bill McKnight, owner of Automated Petroleum & Energy Co. (Brandon, FL), remembers in the 1980s when all major oil companies offered discounts to customers who paid for their gas purchases with cash. As he has watched pump prices steadily head skyward, McKnight began thinking it might be time for a flashback.

McKnight supplies gas to 243 CITGO, Chevron and BP stations while he leases locations to 35 open dealers, one of which is Larry Neville, owner of the Bell Shoals CITGO (Valrico, FL). McKnight knew Neville was paying astronomical fees for credit card transactions, so he contacted Neville about testing a discount for cash purchases at the pump.

“Larry’s site is pretty close to our offices and I wanted to try a close station in case we had to make any quick changes,” says McKnight. “We wanted to run the test for at least two months before we told anyone else—we wanted to see if we could maintain gas sales and reduce the fees Larry had to pay for credit card purchases at the pump.”

Neville was ecstatic at the opportunity. With gas retailing above the $2 per gallon mark, his credit card fees continued to climb. And with 70% of his customers using credit cards, he was essentially losing money by selling gas. In May, he implemented a two-tier pricing system, where customers paying with cash would get 3′ off a gallon, and those using a CITGO branded Cash Card would get an additional 4′ off—a total 7′ savings per gallon. Because CITGO already had a relationship with VeriFone for handling “bounce-back” at the pumps, Neville just had to order some additional signage to explain the discount to customers.

“Since we started discounting the gas, my credit card transactions have dropped significantly,” says Neville. “And we’ve seen an increase in the purchase of our CITGO Cash Cards. Before we may have sold $4,000 or $5,000 a month in Cash Cards, which I make a 3% margin on. In September alone we sold over $40,000. Each month we’ve had this pricing in place, my gas sales have increased by 10% from that month the previous year.”

Neville is excited about the difference in his sales, but the process hasn’t been an entirely smooth sail. Most of his customers are thrilled about the lower prices at the pumps, except for those who are accustomed to using their Visa or MasterCard for gas purchases.

“Some people were very upset about paying more for using their credit card,” he says. “Our price sign carries our cash price, and below the sign it says ‘cash or CITGO Plus Card.’ But when credit card customers get to the pumps they’re seeing a higher price. A lot of people get rewards from the credit card companies for using their regular credit cards and they don’t see why they should be punished for it, but we’re doing the best we can to explain the hows and the whys of the whole thing. Yes, we’ve lost some customers, but overall everyone seems pretty pleased.”

McKnight understands why the discount program puts off some customers, but his sympathies lie with his dealers.

“Most [customers] are unaware of what a store operator has to pay in terms of credit card fees,” he says. “Sometimes fees are as high as 4′ to 6′ a gallon. So we made up flyers to distribute and have people at the stations explaining the discount so they can understand.

“But you can’t argue with results,” McKnight continues. “In the first month gas sales were up and Larry saved in excess of $500 in credit card fees. Last month he was up 20,000 gallons over last year and we’ve converted a tremendous number of people over to the CITGO Cash Card.”

McKnight has since introduced the discount plan to his other dealers. He has two sites in addition to Neville’s already underway, with nine more on deck. As Chevron works with VeriFone to get the software in place to roll back prices, he hopes some of his Chevron dealers will enjoy the same opportunity.